A manager must make a decision on shipping. There are two shippers: A and B. Both offer a two-day rate: A for $536, and B for $525. In addition, A offers a three-day rate of $464 and a nine-day rate of $416, and B offers a four-day rate of $459 and a seven-day rate of $436. Annual holding costs are 37 percent of unit price. Three hundred and ninety boxes are to be shipped, and each box has a price of $154. Which shipping alternative would you recommend?

I would recommend shipper A three days option as that is the cheapest option with $604.499

Explanation:

Given data

Boxes to be shipped = 300

Cost/Box = $154

Annual holding cost = 37%.

Solution:

Total cost of boxes

= $154 * 300

= $46,200

Holding cost

= 0.37 * $46,200

= $17,094.

Daily holding cost

= $17,094/365

= $46.833.

Shipper A

Two days rate = $536

= $536 + 2 ( 46.833 )

= $629.266

Three days rate = $464

= $464 + 3(46.833)

= $604.499

Nine days rate = $416

= $416 + 9(46.833)

= $835.697

Shipper B

Two days rate = $525

= $525 + 2(46.833)

= $616.67

Four days rate = $459

= $459 + 4(46.833)

= $646.332

Seven days rate = $436

= $436 + 7(46.833)

= $763.831

I would recommend shipper A three days option as that is the cheapest option with $604.499

the correct option is c